INTERNATIONAL TROPICAL TIMBER ORGANIZATION

ITTO

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PROJECT DOCUMENT

PROMOTING AND CREATING MARKET DEMAND FOR CERTIFIED TROPICAL WOOD AND VERIFIED LEGAL TROPICAL WOOD

PD 391/06 Rev.2 (M)

ECONOMIC INFORMATION AND MARKET INTELLIGENCE

GOVERNMENT OF JAPAN

ENGLISH

A major obstacle to promoting certified tropical wood and verified legal tropical wood (hereafter ;'CNL wood") as a means to achieving sustainable forest management in tropical countries is the inadequate market demand for CNL wood. Promoting and creating demand for CNL wood are urgent tasks for Asia because it produces and consumes more tropical wood than any other region. To create such demand is especially important in Japan, one of the world's largest rmporters of tropical wood.

The Project will establish a center - the "FairWood Center" - to act as a clearing house and a point of expertise for CNL wood. The FairWood Center will support companies both on the demand and supply sides to trade in CNL wood by providing attractive business-oriented environmental and social information and supporting phased approaches to boost supply:

The Project will focus on Indonesia and Malaysia as tropical timber producing countries, and the knowledge gained from the Project will be used to open the services of the FairWood Center to all producer countries.

The model developed under the Project to encourage sustainable forest management by creating demand for legal and sustainable wood products in consuming countries can be applied to other producer and consumer countries.

EXECUTING AGENCIES:

DURATION:

BUDGET AND PROPOSED SOURCES OF FINANCING:

FRIENDS OF THE EARTH JAPAN (FoE Japan) GLOBAL ENVIRONMENT FORUM (GEF)

24 MONTHS

SOURCE

ITTO

EXECUTING AGENCY

TOTAL

CONTRIBUTION IN US$

257,472

45,000

302,472

TABLE OF CONTENTS

PART I. CONTEXT ........................................................................... 1 1. Origin .................................................................................................................... 1

2. Sectoral Policies ................................................................................................... 2

3. Programs and Operational Activities ..................................................................... .4

PART 11. THE PROJECT...................................................................... 5 1. Project Objective ................................................................................................... 5

1-1 Development Objective ........................................ ~ .............................................. 5

1-2 Specific Objective ................................................................................................ 5

2. Justification ........................................................................................................... 5

2-1 Problems to be addressed ................................................................................... 5

2-2 Intended situation after Project completion .......................................................... 8

2-3 Project strategy ................................................................................................... 8

2-4 Target beneficiaries ............................................................................................. 9

2-5 Technical and scientific aspects ......................................................................... 10

2-6 Economic aspects ............................................................................................. 10

2-7 Environmental aspects ...................................................................................... 11

2-8 Social aspects ................................................................................................... 11

2-9 Risks ................................................................................................................. 12

3. Output. ................................................................................................................ 14

3-1 Specific Objective 1 ........................................................................................... 14

3-2 Specific Objective 2 ........................................................................................... 14

4. Activities ............................................................................................................. 14

4-1 Output 1-1 ......................................................................................................... 14

4-2 Output 1-2 ......................................................................................................... 15

4-3 Output 1-3 ......................................................................................................... 15

4-4 Output 1-4 ......................................................................................................... 15

4-5 Output 1-5 ......................................................................................................... 15

4-6 Output 2-1 ......................................................................................................... 15

4-7 Output 2-2 ......................................................................................................... 15

5. Logical Framework Worksheets .......................................................................... 16

6. Work Plan ........................................................................................................... 18

7. Budget ................................................................................................................ 20

7-1 Overall project budget by activity ....................................................................... 20

7-2 Yearly project budget by sources ....................................................................... 21

PART Ill. OPERATIONAL ARRANGEMENT ................................................. 23 1. Management structure ........................................................................................ 23

2. Monitoring, reporting and evaluation .................................................................... 24

3. Future operation and maintenance ...................................................................... 24

PART IV. THE TROPICAL TIMBER FRAMEWORK ......................................... 25 1. Compliance with ITTA 1994 Objectives ................................................................ 25

2. Compliance with ITTO Action Plan ...................................................................... 26

ANNEXA1 Profile of executing agency - Friends of the Earth Japan ................ 28 ANNEXA2 Profile of executing agency - Global Environmental Forum .............. 30 ANNEX B Curricula Vitae of the Key Personnel ............................... . ' ........ 32

ANNEX C Terms of reference for consultants and experts .......................... 37

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ANNEX D List of the advisory group members ......................................... 41 ANNEX E Existing certification/verification initiatives in Indonesia ............... 42 ANNEX F Existing certification/verification initiatives in Malaysia ................ 44 ANNEX G Consultations in Indonesia ...................................•................. 45 ANNEX H Consultations in Malaysia ....................................................... 47 ANNEX I Proposed Project Framework ................................................. 49 ANNEX J Procedure for identifying on 1 or 2 potential companies to

begin trading in CNL wood .................................................... 50 ANNEX K Recommendations of the 31 st Expert Panel and summary of

the modifications ................................................................ 51 ANNEX L Request for letters of consent to the governments of Indonesia

and Malaysia ...........................................................•.......... 53 ANNEX M Draft agenda of the workshop ................................................. 57 ANNEX N Procedure for selecting companies in Japan and in producer

countries .......................................................................... 58 ANNEX 0 Recommendations of the 32nd Expert Panel and summary of

the modifications ................................................................ 59

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AFP

ASEAN

BRIK

BRIMAS

C&I

CBO

CIFOR

CoC

CNLwood

DFID

FA

FD Sabah

FFPRI

FLEG

FLEGT

FMUs

FoE Japan

FRIM

FSC

FWI

GEF

GFTN

GFS

HCVF

IGES

IPB

JFWIA

LEI

MoE

MoF

MoFA

MPIC

MTCC

NGOs

NTFP

PEFC

SFM

TFT

TNC

UKMoU

USAID

WALHI

WSSD

Acronyms

Asia Forest Partnership

Association of Southeast Asian Nations

Badan Revitalisasi Industri Kehutanan (Forest Industry Revitalization Body)

Borneo Resources Institute

Criteria anq indicators

Constituent Based Organization

Center for International Forestry Research

Chain of custody

Certified tropical wood and verified legal tropical wood

The UK Department for International Development

Forestry Agency of Japan

Forestry Department, Sabah, Malaysia

Forest and Forest Products Research Institute

Forest law enforcement and governance

Forest law enforcement and governance and trade

Forest management units

Friends of the Earth Japan

Forest Research Institute of Malaysia

Forest stewardship Council

Forest Watch Indonesia

Global Environmental Forum

Global Forest Trade Network

Global Forestry Services

High conservation value forest

Institute for Global Environmental strategies, Japan

Institut Pertanian Bogor

Japan Federation of Wood Industry Associations

Lembaga Ekolabellndonesia (The Indonesian Ecolabelling Institute)

Japanese Ministry of Environment

Indonesian Ministry of Forestry

Japanese Ministry of Foreign Affairs

Ministry of Plantation Industries and Commodities, Malaysia

Malaysian Timber Certification Council

Non governmental organizations

Non timber forest products

Program for the Endorsement of Forest Certification

Sustainable forest management

Tropical Forest Trust

The Nature Conservancy

Memorandum of understanding between the United Kingdom and Indonesia

The US Agency for International Development

Wahana Lingkungan Hidup Indonesia (Environmental Forum for Indonesia)

World Summit on Sustainable Development

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PART I. CONTEXT

1. Origin Illegal logging in the Asia-Pacific region is a major threat to global efforts to promote sustainable

forest management. It is pervasive and causing enormous damage to forests, to people

dependent on forests and to the economies of tropical timber producer countries.

Recognizing that Japan is a major consumer of tropical wood products and therefore has an

important role to play in combating illegal logging, the Japanese government has stated, as its

basic policy, that Japan should not use illegal wood. The Project focuses on Japan, one of the

world's largest importers of tropical wood, and Indonesia and Malaysia, which are major

suppliers of tropical wood to Japan.

There are already a variety of initiatives in Indonesia and Malaysia to address illegal logging

through market mechanisms. The major initiatives are certification programs, namely the. Forest

stewardship Council (FSC), Lembaga Ekolabel Indonesia (LE I) and the Malaysian Timber

Certification Council (MTCC). The combined area of certified forests in Indonesia and Malaysia

is over 5 million ha (see Table 1), but this represents only a small percentage of the potential

certifiable forest area and can only supply the market with small volumes of certified wood.

Table 1: Area of certified forest in Indonesia and Malaysia (hectares) Indonesia Malaysia

FSC 274,598 71,664 LEI 91,767 -MTCC - 4,730,774 Total 366,365 4,802,438

Data as of May 19, 2006.

Source: http://www.fsc-info.org, http://www.lei.or.id/eng/ishlindex.php,

http://www.mtcc.com.mylindex. asp

Increasing market demand is critical for these initiatives to succeed. Demand from Europe for

CNL wood is growing. The Tropical Forest Trust (TFT) and the Global Forest Trade Network

(GFTN) are assisting European buyers to source certified wood products. Such initiatives are

laudable, but the European market is far smaller than the Asia-Pacific market. The Japanese

market share is particularly large \ however, Japanese companies that use tropical timber are

not sufficiently aware of forest management issues in the region and do not know how to source

legal and sustainable wood products. A recent survey conducted by the Japan Federation of

Wood Industry Associations (JFWIA) of its members confirms this observation. 50% of members

believe that no iIIegally-sourced wood is included in their trade and 40% simply do not know if

illegal wood is included or not. Moreover, 65% of members stated that their customers have

shown no interest in the legality and origin of the wood that they purchase. None of the

companies had a timber procurement policy.2

To fill the gap between the market-based, voluntary initiatives in tropical countries and the

Japanese market, Friends of the Earth Japan (FoE Japan) and Global Environmental Forum

1 In 2004, Japan was the world's largest importer of tropical plywood and the third largest importer of tropical logs (ITTO. 2005. Annual review of world timber). 2 JFWIA. 2002. Report of questionnaire on the illegal logging issue.

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(GEF) launched the "FairWood" campaign for Japanese wood traders and buyers at the end of

2002. We conducted a FairWood forum in Tokyo in December 2004, which was attended by

representatives from over 100 companies. At this forum we invited wood buyers from the UK

and the US to inform Japanese companies on how to make responsible timber purchases and

how buyers can support timber producers to improve their practices. We also invited speakers

from NGOs in supplier countries (Telapak and Forest Watch Indonesia) to inform the companies

about local realities.

FoE Japan and GEF continues working on the "FairWood" campaign by collecting and

disseminating information on the state of the world's forests and timber trade, giving policy

recommendations on timber and paper procurement to industries and government, and

organizing seminars, symposiums, and working groups for discussion on timber and paper

procurement policy. We regularly send out a mail magazine and news summary on timber trade

and forest issues.

The proposed project to promote and create market demand for CNL wood evolved from the

discussion during the FairWood forum in 2004 and our subsequent activities. The aims of the

Project are:

• to raise the awareness of Japanese tropical timber buyers of the need for sustainable

forest management and to provide them with information on how to source

legal/sustainable tropical wood from Indonesia and Malaysia;

• to increase demand for CNL wood in Japan; and

• to support phased approaches for certification and legal verification systems.

To achieve these aims the Project will establish a web-based clearing house and point of

expertise (the FairWood Center), which will continue to promote CNL wood after project

completion.

2. Sectoral Policies

2-1. International policies and frameworks In May 1998, G8 Foreign Ministers agreed to launch and support the "G8 Action Program on

Forests" focusing on five priority areas, one of which was illegal logging. The subsequent G8

Summits in Birmingham (1998), Okinawa (2000) and Kananaskis (2002) also called for efforts to

tackle illegal logging and the ensuing timber trade.

In line with these agreements, the "Bali Declaration" agreed to by the Ministerial Meeting to

launch the East Asia Forest Law Enforcement and Governance (EA-FLEG) in 2001 set the

following objectives:

• strengthen bilateral collaboration to address illegal logging associated with illegal trade;

• explore ways in which the export and import of illegally harvested timber can be

eliminated;

• help raise awareness of forest crimes and threats; and

• involve stakeholders in decision-making thereby promoting transparency, reducing the

potential for corruption, ensuring greater equity, and minimizing the undue influence of

privileged groups.

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A the first G8 Environment and Development Ministerial Meeting held in March 2005 in Derby

(UK) and at the subsequent G8 meeting in July in Gleneagles, the country representatives

recognized that tackling illegal logging requires action by both timber producing and consuming

countries. They agreed to:

• take steps to halt the import and marketing of illegally logged timber;

• work with and encourage the private sector in producer and consumer countries,

including timber processors, exporters, importers and civil society organizations, to

develop and promote legally sourced timber products;

• work with the private sector to help them adopt and implement voluntary codes of

conduct, good business practices and improved market transparency; and

• work with civil society to inform consumers of the problems caused by illegal logging.

2a2. Policy of Japan

In Japan's Climate Change Initiative that was announced at the G8 Gleneagles Summit 2005,

the government stated that "Japan will take actions to tackle illegal logging through a

government procurement policy, effort to work out a voluntary 'code of conduct' on the

regulation of trade, assistance to timber producing countries and follow-up of the G8 Action

Programme on Forests." Japan's "Green Procurement Policy" was subsequently revised and

the revisions have been in effect since April 2006. Under this policy, the legality and

sustainability of timber and timber products must be considered in public procurement.

The Forestry Agency of Japan prepared "The Guideline for Verification and Legality and

Sustainability of Wood and Wood Products" for implementation of the revisions. The Guideline

discusses definitions of legality and sustainability, the establishment of a multi-stakeholder

meeting process, and the possibility of further amendments to the Guideline.

2-3. Policies between Indonesia and Japan

The governments of Indonesia and Japan are collaborating to tackle illegal logging and the

illegal timber trade. They established the Asia Forest Partnership (AFP) at the World Summit on

Sustainable Development in September 2002 to promote sustainable forest management in

Asia. The main issues that AFP is addressing include good governance and forest law

enforcement, developing capacity for effective forest management and the control of illegal

logging.

In June 2003, Indonesia and Japan Signed the Joint Announcement and Action Plan on

Cooperation in Combating Illegal Logging and the Trade in Illegally Logged Timber and Wood

Products. Both countries recognize the need for urgency and have agreed to the following

actions:

• development, testing and implementation of the systems for verification of legal

compliance in due course to be applied throughout Indonesia and Japan, in respect of

timber and wood products imported directly or indirectly from Indonesia;

• encouraging involvement of civil society in the effort to combat associated illegal trade

and illegally harvested timber and wood products and particularly in monitoring the

implementation of the systems for verification of legal compliance; and

• joint development of systems for the timely collection and exchange of data on timber

trade and wood products between the two countries.

-3-

2-4. Policies between Malaysia and Japan

On 13 December 2005, the Prime Minister of Malaysia, Abdullah Ahmad Badawi, and the

Prime Minister of Japan, Junichiro Koizumi, signed a joint statement for an economic

partnership between Malaysia and Japan. Attachment 1 of the statement addresses the issue of

sustainable forest management and the trade in legally obtained timber. Both countries agreed

to establish a bilateral expert group under the framework of co-operation, which will hold

consultations in order to promote sustainable forest management in both countries on:

• measures to promote sustainable forest management;

• enhancing trade in timber and timber products from sustainable resources;

• research and development and transfer of technology on innovative measures and

technologies on forest and wood utilization; and

• international frameworks concerning forests and timber including ITIO and AFP.

3. Programs and Operational Activities

The Japanese government is engaged in a variety of activities to combat the trade in illegally

harvested timber and to promote sustainable forest management. For example, based on the

Joint Announcement between Indonesia and Japan the government is developing a tracking

system using 2-dimension barcode technology, which is able to track logs from the stump to the

mill. The government also provides international assistance to the forestry sector of tropical

countries through ODA: projects include industrial afforestation/reforestation, prevention of

forest fire, promotion of community forestry and capacity building.

The ITIO has supported activities in Indonesia and Malaysia to assist the respective

governments to develop systems for legal verification, certification, tracking and endorsement,

as well as promoting forest law enforcement. ITTO projects have supported capacity building of

forest certification schemes, such as aSSisting LEI to prepare the ground for forest certification

in Indonesia (PD 1/95 Rev. 4 (M». A current ITIO project (PD 80/01 Rev.6 (M» is closely linked

to the proposed project. Its objective is to increase the availability of certified timber in Indonesia

by improving public awareness of certification systems and establishing the national capacities

needed to ensure implementation and monitOring of credible certification systems. The ITTO

project PD 74/01 Rev.1 (M) is implementing a pilot study on ways to control illegal logging in

production and protected areas in Riau and West Kalimantan. ITTO also supported a project

(PD 38/00 Rev.1 (F» to promote trans-boundary conservation along the border between

Indonesia and the Malaysian states of Sabah and Sarawak, where the conservation values of

the Kayan Mentarang National Park in East Kalimantan are threatened by cross-border illegal

logging.

Recently, the ITTC thirty-ninth session announced the strategic policy activities of the

Committee on Economic Information and Market Intelligence in the draft biennial work program

for the year 2006-2007 (ITIC (XXX1X)/7 Rev. 3). The strategic policy activities included

"study on subsidies affecting tropical timber products [ITTC Decisions 4(XXXV) and 1 (XXXVII)]"

and "Consider further work on forest law enforcement and illegal trade in timber and timber

products [ITTC Decision 6(XXXI)]." The aim of the Project is related to these activities.

-4-

PART 11. THE PROJECT

1. Project Objective

1-1 Development Objective The overall development objective of the project is to promote and create market demand for

. certified tropical wood and verified legal tropical wood (hereafter CNL wood).

1-2 Specific Objective Specific Objective1: To promote the use of CNL wood in Japan by establishing and operating

a clearinghouse, the FairWood Center, for exchange of information

related to CNL wood.

Specific Objective2: To support the introduction of credible certification and verification

systems in tropical wood exporting countries.

2. Justification

2-1 Problems to be addressed The international trade in tropical timber is threatened by its poor image. Revitalizing this trade

requires that systems be developed and implemented that provide consumer countries with

confidence that the timber they procure is legal and sustainable. The marketplace must also

provide an adequate incentive for producing countries to implement such systems.

In Japan, a major importer of tropical timber and wood products, the availability of CNL wood is

very low. Weak domestic demand and the small volumes that producing countries are able to

supply explain the low volumes of CNL wood that are traded. The problems of low demand and

small volumes of supply are mutually reinforcing.

Closer examination reveals that the promotion of CNL wood is hindered on both consumer and

producer sides by 1) a lack of information and 2) insufficient support services. For both sides

information on certification and verification systems is: dispersed and hard to find (a significant

problem in Japan is that such information is largely not available in Japanese); not attractive for

business people as information on quality, cost, and delivery schedule is not clear, and; poorly

promoted. In addition, the supply of CNL wood must meet the requirements of buyers for quality,

cost and delivery schedule. There is no forum to exchange such information between suppliers

and buyers.

Many wood suppliers and buyers require institutional and informational support to begin trading

in CNL wood. Japanese firms require assistance to develop wood procurement policies.

They lack information about how to procure certified/verified wood and are not fully aware of the

potential benefits of trading in CNL wood. Consequently, there is little demand from Japan for

CNL wood, which results in little incentive for suppliers to offer CNL wood. Organizations that

wish to offer assistance find that knowledge of procurement practices and the supply chains of

Japanese companies are poor and that information is hard to obtain.

Buyers that wish to procure legal and sustainable wood not only need information on the types

and availability of CNL wood, they also require information on the environmental and social

-5-

burden/risks associated with all commercial tropical wood according to species and regions.

Information of this sort is unavailable.

Support for suppliers is also lacking. Phased approaches are a pragmatic means of making

certification more accessible to suppliers, but much greater support for phased approaches is

required. Legal verification systems have only recently been developed and suppliers will

require external assistance to implement these. Suppliers lack basic information on certification

and verification and up-to-date market information for CNL wood.

A clearing house and point of expertise in Japan (FairWood Center) would make an important

contribution to bridging this information gap. It would also provide: a mechanism through which

suppliers and buyers could contact each other; support to suppliers to implement phased

approaches to certification, and; support to buyers to develop procurement policies.

The FairWood Center would not only provide information and support for trade in legal and

sustainable wood, it will also provide information (guidebooks) on the social and environmental

risks of using wood that is not verified as legal and/or sustainable.

Another critical constraint to the development of CNL wood markets is that premiums do not

exist in some markets and in others are low. The proposed center to promote CNL wood would

advocate a "fair price" for "fair wood."

Problem tree

See next page.

-6-

Problem tree

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2-2 Intended situation after Project completion By the end of the 24-month project period:

1) A center of expertise and information clearinghouse- the FairWood Center - will be

established;

2) Use of CNL wood will be promoted in Japan;

3) The target buyers in Japan will develop procurement policies for wood products;

4) The target suppliers will have the capacity to obtain certification and/or verification of

legality; and

5) Opportunities for exchange information on CNL wood products would be offered through

workshops.

The FairWood Center will:

• act as a clearing house to disseminate information on existing certification and verification

systems, and social and environmental risks of wood procurement;

• provide opportunities to exchange information among relevant stakeholders through

workshops, seminars, a mail based timber magazine, forums etc.;

• act as a bridge to introduce suppliers and buyers of CNL wood, provide support for phased

approaches to certification in supplier countries and for Japanese buyers to develop

procurement policies; and

• in the future, provide expertise for public procurement and public works projects in Japan, and open its services to all supplier countries.

The FairWood Center will continue to promote trade in CNL wood after project completion.

To ensure the sustainability of the FairWood Center it may be appropriate to shift to a

member-based operation, with members including Japanese wood buyers and timber

companies in tropical countries.

The Project will build partnerships between Japanese companies and companies in producer

countries to conduct trade in CNL wood. These partnerships will stand as demonstration

models/success stories that can be used to encourage other Japanese companies to build

similar partnerships.

During the project period, the FairWood Center will focus on Indonesia and Malaysia as supplier

countries. The knowledge accumulated during the project period will be used to make the

services of the Center available to all countries supplying wood to Japan.

The Project intends to promote markets for sustainable tropical wood as a means of raising the

profile of the tropical wood industry, contributing to sustainable forest management and

improving the livelihoods of people who rely on forests.

2-3 Project strategy To achieve the Specific Objectives, the following strategies are planned:

1. Identify and classify companies on both demand (Japan) and supply (Indonesia and

Malaysia) sides that have the potential and desire to trade in CNL wood.

2. Collect environmental and social information on wood species and products as well as

certification and verification systems, and compile this information in an attractive

-8-

business-oriented guidebook.

3. Conduct workshops to disseminate this information to Japanese wood buyers and to identify

companies interested in developing procurement policies.

4. Create the web-based FairWood Center to act as bridge between buyers and sellers.

The Center will be a clearing house for information on CNL wood and will provide support to

both buyers and sellers.

5. Assist Japanese buyers in establishing timber procurement policies and integrate these with

their corporate social responsibility and risk management strategies.

6. Select a small number of timber companies in Malaysia and Indonesia that are interested in

supplying the Japanese market with CNL wood. Assist these companies to develop action

plans in order to implement phased approaches to certification and/or legal verification that

are acceptable to Japanese buyers. Link these suppliers with buyers in Japan to act as a

demonstration of what can be achieved. For the procedure to select companies in Japan

and companies in producer countries, see annex N.

The following alternatives have been examined to achieve the objectives:

Alternative 1 :

The Project could build the capacity of timber suppliers in Indonesia and Malaysia to acquire

certification/verification and to improve their forest management towards SFM.

However, apacity building of suppliers and the promotion of certification alone would have

limited impacts as the low demand for CNL wood and the high cost of obtaining certification

would remain major obstacles.

Alternative 2:

Another alternative is to build the awareness of consumers in Japan. This would require

educating a very large population about the background and underlying causes of illegal and

destructive logging, the nature and significance of certification/verification systems, and the

importance of demand-driven approaches to promote SFM. Although such awareness-raising is

important, it is time-consuming and would not represent the most cost-effective use of

resources.

Alternative 3:

The Project could conduct a campaign in Japan against tropical timber products sourced from

illegal and destructive logging. Based on previous experiences of such campaigns, it is likely

that Japanese consumers would not understand the background of the campaign and tend to

simplify the issues. There is a risk of prompting a boycott of timber from specific countries,

which would not generate any long-term solutions and could unjustly jeopardize their

development prospects. This type of campaign could target its criticism at specific companies,

which would simply shift sourcing from one place to another without consideration for SFM.

2-4 Target beneficiaries At the national level:

-Wood-related businesses in Indonesia, Malaysia and Japan.

All the outputs from the Project, such as the guidebook on social/environmental risks,

information to promote the supply and use of CNL wood and workshops, will contribute to

building the capacity of wood-related businesses on the consumer side and the supplier side.

-9-

-Japanese, Indonesian and Malaysian governments

The project will contribute to the efforts to promote sustainable forest management and combat

illegal logging that are part of the Joint Announcement and Action Plans announced by the

Indonesian and Japanese governments and the Joint Statement for an economic partnership

between the governments of Malaysia and Japan.

At the International level:

- The Project model to promote SFM by creating demand for CNL wood in consuming countries

can be applied to other producer and consumer countries in Asia through the co-operation of

regional/international forums such as ASEAN or AFP.

At the local level:

- Through promoting the use of CNL wood and avoiding wood sourced from illegal or

destructive logging, the Project will: strengthen the rights and security of local people through

the proper enforcement of legislation and forest regulations; facilitate their participation in forest

management; encourage sustainable management practices that allow forests to provide public

goods (stabilization of hill slopes, preservation of waterways, etc.), and; promote the rights of

local people regarding forest access and use.

2-5 Technical and scientific aspects The technical and scientific aspects of the project are associated with 1) the development of a

guidebook for buyers in Japan, and 2) the development of a model to promote phased

approaches to certification/verification for wood business in supplier countries. At a

multi-stakeholder dialogue on "Practical actions to combat illegal logging" convened by

The Forests Dialogue on 7-10 March 2005 in Hong Kong, the participants agreed that business

and civil society should create a simple, credible, independent and objective ratings system that

can be utilized to identify high-risk countries and tree species, and possibly expanded to cover

companies. The proposed guidebook will include information on species and regions.

Local organizations in Malaysia and Indonesia with relevant technical and scientific expertise,

such as CIFOR, IPS in Indonesia and FRIM in Malaysia, will be recruited to assist in the

development of the guidebook.

Phased approaches that promote a pragmatic step-by-step approach are supported by many

organizations including ITIO, PEFC and WWF to overcome the cost and technical barriers to

certification. Forest managers have responded positively to these approaches and the

necessary technical and scientific expertise is progressing. The Project will employ the expertise

of local organizations in Malaysia and Indonesia to develop a model that can be used to

promote the phased implementation of certification/verification schemes, particularly with a view

to encouraging the participation of Japanese buyers. A matrix will be developed to identify

promising forest-related businesses in Indonesia and Malaysia to participate in development of

the model. The model will be open to all certification/verification schemes and will encourage

any efforts to shift toward acquiring certification/verification.

2-6 Economic aspects The introduction of certification/verification systems will raise the overall production cost.

A barrier to promoting the use of CNL wood is the difficulty for timber-related businesses in

-10-

tropical countries to bear the additional cost. These costs are especially high when present

practices do not conform to sustainable forest management principles (compliance costs) and

when countries do not have their own national certification standard (auditing costs). The matrix

discussed above will identify forest-related businesses that are attempting to move towards

SFM and have already taken steps in this direction. Compliance costs will be lower for such

companies. Both Indonesia and Malaysia have their own national certification schemes and

certification bodies, which reduce assessment and auditing costs. The Project model to support

phased approaches will prioritize the issue of costs and the FairWood Center will identify

cost-effective certification/verification options.

Through workshops and discussions the Project will identify Japanese companies that wish to

use CNL wood, with the aim of assisting these companies to develop timber procurement

policies. The Project will encourage Japanese buyers to pay an appropriate price for CNL wood

in recognition of the extra costs in producing such wood, and will assess options for Japanese

buyers to meet part of the costs of certification/legal verification in developing countries.

The recent reform of Japan's public procurement policy will contribute to raising the demand for

CNL wood in Japan and could lead to higher prices.

2-7 Environmental aspects Illegal logging is recognized as a major threat to SFM as it is unregulated forest destruction that

values forests only for the timber that can be extracted. Illegal and destructive logging in

general: undermines national forest programs for sustainable forest" management; threatens

sensitive ecosystems, including those under protected area management; is responsible for

extensive deforestation and forest degradation; triggers forest fires, and; decreases forest

bio-diversity.

The project is expected to promote SFM by encouraging the use of wood that has been

harvested according to forest-related legislation and regulations and widely accepted SFM

principles. These principles, and increasingly national legislation/regulations, recognize the

importance of: establishing and enforcing sustainable rates of harvesting; implementing a

management plan that minimizes impacts on waterways and hill slopes; protecting endangered

species; implementing reduced impact logging practices, and; preserving high conservation

value forests.

The guidebook that will be developed by the Project as a risk assessment tool will help the

business sector to avoid sourcing timber from destructive forestry operations.

2-8 Social aspects The social aspects of the Project primarily relate to the social changes that occur after systems

of legal verification and forest certification are implemented. The social consequences of illegal

and unsustainable logging that exist prior to the introduction of such systems include:

- Direct impacts on communities: a) social disintegration due to conflicts over the destruction

of the forest resource and decisions made in the interests of individuals rather than the

community, b) damage to livelihoods through the degradation of waterways and decrease in the

supply of non-wood and wood products used for subsistence and/or income generation, c) low

provision of social services because of lost public revenue from royalties and taxes, d) eventual

-11-

loss of wage employment opportunities when the local forestry industry collapses through

over-harvesting, and e) intimidation and physical abuse of those that oppose the illegal

practices.

Impacts on forest governance: democratic processes are impeded by weak systems of

governance characterized by rent seeking, patronage, bribery and influence peddling.

Independent studies have identified various positive social impacts after appropriate legal

verification and forest certification schemes were introduced. Social benefits have been secured

from certification of both industrial and community-based forestry. Benefits include:

a) legitimization of local land tenure rights, b) continued access to forests for non-industrial uses,

c) increased enthusiasm for sustainable forest management after seeing the benefits of

improved law enforcement and forest certification, d) opening of spaces for communities to

engage in dialogue with other stakeholders, e) enabling communities to control incursions on to

their land and help them set terms under which their resources are used, f) community leverage

for donor and government financial and technical support, g) improved labor conditions and

employment, and h) improved livelihoods from the establishment of locally-based processing

operations.

By supporting the development and implementation of well-designed legal verification and

certification systems, the project seeks to reduce the adverse social consequences of

illegal/destructive logging, especially on the local community. Conversely, the project seeks to

maximize the social benefits that are derived from sustainable forest management from the

introduction of certification/verification systems. A task of the FairWood Center will be to

encourage further refinement of these systems to be responsive to local needs and

expectations, and to fully utilize local institutions and existing practices for sustainable forest

management.

2-9 Risks

The additional costs of implementing certification and legal verification systems can weaken the

competitiveness of CNL wood products. To avoid this situation, it is important to both reduce the

costs of these systems and to raise the awareness of buyers to the importance of "green"

procurement. The Project provides opportunities for cost saving by developing a cost-effective

model for supporting phased approaches to certification/legal verification in supplier countries.

The Project also supports targeted buyers to develop green procurement policies that are

informed by the concepts of legality and sustainability.

Another potential risk is that green procurement policies could exclude legally produced wood

products that are not certified or legally verified. However, the demand for CNL wood in the

Japanese market can be expected to remain relatively small compared with the total size of the

market. As long as the Project takes a balanced approach by supporting both the supply side

and demand side, it can gradually build a market for CNL wood that does not threaten

non-verified legal wood.

In the operation of the Project, inadequate cooperation and coordination with partner agencies

in Indonesia and Malaysia could be another risk. However, the executing agencies have visited

the partner agencies to explain the Project and have been successful in garnering their support.

Further discussion with partner agencies will take place prior to project initiation.

-12-

A further potential risk is that Japanese buyers may not be sufficiently interested in CNL wood,

despite the project activities. However, a change in public procurement policy, the results of

efforts of environmental organizations in Japan and recent initiatives within the private sector

indicate that this should not be a problem. The revision in 2006 of Japan's green procurement

policy adopted under the "Law Concerning the Promotion of Procurement of Eco-Friendly Good

and Services by the state and Other Entities" included the requirement that consideration must

be given to the legality and sustainability of timber, wood products and paper products that are

procured by the government. This has already stimulated a response from the private sector:

associations of timber importers and timber manufacturers are now creating codes of conduct

and will ask their member companies to only use legal wood. Five environmental organizations,

including the executing agencies, have been discussing the sustainability of paper purchases

with companies through organizing a study team. Consequently, the major paper supplier

companies in Japan - Canon, Nippon Paper Industries, Oji Paper Group, Fuji Xerox and Askul -

announced sustainable paper procurement poliCies.

-13-

3. Output

The expected outputs of the project organized according to the Project objectives are listed

below.

3-1 Specific Objective 1 To promote the use of CNL wood in Japan by establishing and operating a clearinghouse,

FairWood Center, for exchange of information related to CNL wood.

Output 1-1:

Output 1-2:

Output 1-3:

Output 1-4:

Output 1-5:

Pre-study of the degree of interest in procuring CNL wood in Japan and to

identify obstacles

Creation of a guidebook on the environmental and social issues associated

with tropical wood from Indonesia and Malaysia

Two workshops to introduce Japanese companies to environmental and social

information on tropical wood as well as ways to avoid environmental/social

risks

Establishment of the FairWood Center to act as a clearinghouse and point of

expertise for information necessary to create a strong cooperative relationship

between consumer and producer countries for trade in CNL wood

Providing assistance to Japanese companies to develop procurement policies

forCNLwood

3-2 Specific Objective 2 To support the introduction of certification or verification systems in the tropical wood producing

countries.

Output 2-1:

Output 2-2:

Identification of obstacles to introducing certification and verification systems in

tropical wood producing countries

Providing support to introduce phased approaches for certification and

verification systems in tropical wood producing countries

4. Activities

4-1 Output 1-1 Activity 1-1-1: Select 5 major wood purchase companies from different industries - trading

companies, wholesale merchants, manufactures, and house builders - in

Japan (total 20 companies). Conduct interview research to identify their

interests in CNL wood, their current procurement practices, their informational

needs and obstacles they face

Activity 1-1-2: Compile the results in a report and use this to inform planning for the FairWood

Center and workshops

Activity 1-1-3: Create a matrix for selecting suppliers in a systematic manner in Indonesia and

Malaysia to participate in the Project

Activity 1-1-4: Conduct one Advisory Group meeting in Tokyo

-14-

;

\

4-2 Output 1-2

Activity 1-2-1: Collect environmental and social information for different regions, wood

species and products

Activity 1-2-2: Analyze collected data

Activity 1-2-3: Compile the analyzed data into an environmental and social guidebook for

procuring tropical wood

4-3 Output 1-3 Activity 1-3-1: Publicize the workshops widely and visit targeted companies mentioned in

Output 1-1 to induce their attendance

Activity 1-3-2: Organize two workshops targeting Japanese companies to introduce

environmental and social information on tropical wood as well as ways to avoid

environmental social risks based on the guidebook mentioned in Output 1-2

4-4 Output 1-4 Activity 1-4-1: Create a FairWood Center website, which will be managed in Japan

Activity 1-4-2: Provide information on CNL wood, certification and verification systems

through the FairWood Center website. Encourage participants of the workshop

(Output 1-3) and targeted companies mentioned in Output 2-1 to utilize the

website. Distribute information through mail magazines

4-5 Output 1-5 Activity 1-5-1: From the original 20 companies interviewed select 10 companies for further

discussions. From these select 1 or 2 companies that are interested in utilizing

certified/verified wood

Activity 1-5-2: Closely assist these 1 or 2 companies to develop procurement policies and to

link them with existing and potential suppliers

4-6 Output 2-1 Activity 2-1-1: Select and interview 5 potential companies (total 10 companies) in Indonesia

and Malaysia.

Activity 2-1-2: Compile a report and reflect the findings in the operation and planning of the

FairWood Center and workshops

4-7 Output 2-2 Activity 2-2-1: Identify 3 suppliers in each country that have the potential to shift towards

supplying CNL wood

Activity 2-2-2: Facilitate exchange of information through the use of the FairWood Center

among the suppliers and potential Japanese buyers

Activity 2-2-3: Assist the selected suppliers in developing action plans to implement phased

approaches for certification and/or verification systems

-15-

5. Logical Framework Worksheets

. ment . Promote and create market demand for CIVL wood

To promote the use of CIVL wood in Japan by establishing and operating a clearinghouse, FairWood Center, for exchange of information related to CNL wood

2: To support the introduction of certification or verification systems in the tropical wood producing countries

utput Pre-study of the degree of interest in procuring CIVL wood in Japan and to identify obstacles

Output 1-2: Creation of a guidebook on the environmental and social issues associated with tropical wood from Indonesia and Malavsia

- Full operation of FairWood Center - Japanese companies, other than the target companies, develop the procurement policy (pp), and procure CIVL with assistance from the Center

- Target company(s) in Japan develops and applies a procurement policy with CNL - Target company(s) in Japan

CNLwood

- Target company(s) in Indonesia and Malaysia develops and implements an action plan for a phased approach to certification or legal verification with the support from the Center - Target company(s) in Indonesia and Malaysia produce certified and/or verified timber and/or wood products

Top 5 companies of trading companies, wholesale merchants, manufactures, and house builders visited and interviewed

Information on environmental and social issues of tropical wood from Indonesia and Malaysia is collected and ana

-16-

An action plan of the Center

Developed procurement policy

An informal statement or proclamation of the partnership in the center

Procurement policies of Japanese companies

A model for procuring CNL wood

Action plans of companies

A model for implementing a phased approach for acquiring certification or verification

A report of current demand and obstacles to the use of CNL wood

A guidebook for wood buyers

CIVL wood can be economically viable

Japanese companies can be motivated to demand CIVL wood

Indonesian and Malaysian suppliers can be motivated to supply CNL wood

Good interviewee acceptance of the process and that all data/references collected are credible

Guidebooks are an effective way of presenting information on social and environmental issues to businesses

Output 1-3: Two workshops to introduce Japanese companies to environmental and social information on tropical wood as well as ways to avoid environmental/social risks Output 1-4: Establishment of the FairWood Center to act as a clearing house and point of expertise for information necessary to create a strong cooperative relationship between consumer and producer countries for trade in CIVL wood Output 1-5: Providing assistance to Japanese companies to develop procurement policies for CIVL wood

Output 2-1: Identification of obstacles to introducing certification and verification systems in tropical wood oroducina countries Output 2-2: Providing support to introduce phased approaches for certification and verification systems in tropical wood oroducina countries

Two workshops conducted in Tokyo and Osaka

FairWood Center established

Participants list; attendance form

Member list of FairWood Center

Completed questionnaires of members

At least 1 Japanese company I The actions announced through participating in the Project took action the website to procure CIVL wood

Top 5 companies in Indonesia and Malaysia (total 10) visited and inteNiewed

2 companies in Indonesia and 2 in Malaysia develops an action plan to implement a phased approach to certification/leaal verification

-17-

Company procurement documents

A report identifying obstacles and potential to acquire certification/legal verification

Action plans

Workshops can be effective in raising the awareness of businesses of environmental and social concerns, and in encouraging them to take action

An independent information clearinghouse can provide useful information to companies and can act as a bridge between suppliers and buyers

The FairWood Center can provide adequate support to Japanese companies

Good inteNiewee acceptance and credibility of all data/references

The FairWood Center can provide necessary support to Indonesian and Malaysian suppliers

6. Work Plan

-1-1: Select 5 major wood purchase companies from FoE, GEF Irllf"l"QrQnt industries - trading companies, wholesale merchants,

anufactures, and house builders - in Japan (total 20 companies). Conduct interview research to identify their interests in CNL wood, their current procurement practices,

r informational needs and obstacles they face

1-1-2: Compile the results in a report and use this to FoE, GEF inform planning for the FairWood Center and workshops

1-1-3: Create a matrix for selecting suppliers in a FoE atic manner in Indonesia and Malaysia to participate in

Project

1-1-4: Conduct one Advisory Group Meeting once in oE, GEF

Output 1~2: Creation of a guidebook on the environmental and social issues associated with tropical wood from Indonesia and Malaysia

1-2-1: Collect environmental and social information for l-,-""",-,-...!...>""-!.!-""...2C!..!

IrllttQr."nt regions, wood species and products

IAr"'\fITV 1-2-2: Analyze collected data

IAr,TI\/ITV 1-2-3: Compile the analyzed data into an FoE, GEF ronmental and social guidebook for procuring tropical

Output 1-3: Two worKshops to introduce Japanese companies to environmental and social information on tropical wood as well as ways to avoid environmentallsocial riSKS

Activity 1-3-1: Publicize the workshops widely and visit FoE, GEF companies mentioned in Output 1-1 to induce their

attendance

1-3-2: Organize two workshops targeting Japanese FoE, GEF companies to introduce environmental and social information on tropical wood as well as ways to avoid environmental social risks based on the guidebook mentioned in Output 1-2

-18-

IAC:TlVIIV 1-4-1: Create a FairWood Center website, which will FoE, GEF managed in Japan

Activity 1-4-2: Provide information on CNL wood, certification FoE, GEF and verification systems through the FairWood Center

Iwemslte. Encourage participants of the workshop (Output 1-3) and targeted companies mentioned in Output 2-1 to utilize the IWE~bsite. Distribute information through mail magazines

Output 1-5: Providing assistance to Japanese companies to develop procurement policies for CAlL wood

1-5-1: From the original 20 companies interviewed FoE, GEF 10 companies for further discussions. From these 1 or 2 companies that are interested in utilizing

certifiedlverified wood

1-5-2: Closely assist these 1 or 2 companies to FoE, GEF develop procurement policies and to link them with eXisting

potential suppliers

Output 2-1: Identification of obstacles to introducing certification and verification systems in tropical wood producing countries

2-1-1: Select and interview 5 potential companies FoE, GEF, IGES 10 companies) in Indonesia and Malaysia

2-1-2: Compile a report and reflect the findings in the FoE, GEF, IGES Inno,,:,·tinn and planning of the FairWood Center and

hops

Output 2~2: Providing support to lntroduce phased approaches for certification and verification systems in tropjcal wood producing countries

2-2-1: Identify 3 suppliers in each countrv that have FoE, GEF, IGES potential to shift towards supplying CNL wood

2-2-2: Facilitate exchange of information through the FoE, GEF, IGES use of the FairWood Center among the suppliers and potential Japanese buyers

2-2-3: Assist the selected su·ppliers in developing FoE, GEF, IGES on plans to implement phased approaches for certification

nd/or verification systems

-19-

7. Budget

7-1 Overall project budget by activity

10 20 30 40 50 60 Activities personnel subcon-

duty travel capital consum- miscella-

Total total tract items able items neous

Qutput1-1

Activity 1-1-1 10,800 2,400 Activity 1-1-2 6,000 5,000 Activity 1-1-3 1,000 Activity 1-1-4 4,300 7,800 2,000 Output 1-2

-20-

7-2 Yearly project budget by sources

1. Yearly project budget by sources - ITTO

2. Yearly project budget by sources - Executive agency

-21-

3. Consolidated yearly project budget

-22-

PART Ill. OPERATIONAL ARRANGEMENT

1. Management structure

PROJECT TECHNICAL COMMITTEE

EXECUTING AGENCY FoE Japan and GEF

TASK TEAM OF TASK TEAM OF JAPAN INDONESIA

JFWIA,IGES FORDA, BRIK, FWI

\=J A DVISORY GROUP

Japan : FA, JFWIA, FFPRI

esia: MoF, BRIK, FWI

sia: MPIC, TRAFFIC,

Indon

Malay

TBD

TASK TEAM OF MALAYSIA

FRIM, TBD, GEC

FoE Japan and GEF, the two executing agencies, will be responsible for the fundamental

planning and operation of the project. Both organizations already have a very close working

relationship that includes daily communications and regular meetings. GEF will be mainly

responsible for planning and organizing the workshops in Japan. FoE Japan will be mainly

responsible for organizing and managing the web-based FairWood Center. The two executing

agencies will work closely together on all other Project activities.

The Institute for Global Environmental Strategies (IGES), which has assisted in formulating the

proposal, will work closely with the executing agencies as a national consultant. The main task

for IGES will be to provide neutral advice, especially on gathering and collation of information

and certification and legal verification activities.

The task teams will advise the executing agencies on day-to-day logistics and coordination for

fluid implementation of the Project in the respective countries. The task teams along with other

local partners will work on the collection of environmental and social information on forests.

The local consultants will provide support to suppliers for developing and implementing action

plans for phased approaches to certification/legal verification.

Advisory group

The Advisory Group will consist of nine members, with three people from each country, namely

Indonesia, Malaysia and Japan. For each country a representative will be selected from

government, private sector and civil society. The main task for the Advisory Group will be to

provide neutral advice, especially on the guidebook for Japanese companies and selection of

potential buyers, companies and the certification/verification schemes/initiatives. Every four

months, the executing agencies will submit a progress report and a plan for the next four

month's activities to the Advisory Group. The members of the Advisory Group will review the

reports and advise the executing agencies on the planned activities. Individual comments will

be disseminated to all Advisory Group members and an E-discussion will be conducted to

-23-

provide further guidance to the executing agencies.

Project technical committee

The Project technical committee will act as the top decision-making body.

2. Monitoring, reporting and evaluation The project will be monitored and evaluated by representatives of ITTO in accordance with

ITTO operational regulations. All the following activities will be carried out on the basis of the

objectives, outputs, activities and indicators established in the logical framework, work plan

and the implementation guidelines.

(a) Project progress reports A project progress report will be submitted at the end of FY2006 and FY2007. The reports will

be submitted to ITTO at least four weeks before each ITTO monitoring visit and two months

before IITC sessions.

(b) Project completion reports A project completion report will be submitted to IITO within three months of the project

completion.

(c) Monitoring, review and steering committee's visits ITTO representatives can attend the meetings of implementation members and FairWood

workshops, in addition to the Advisory Group.

(d) Evaluation The monitoring missions will decide whether an ex-post evaluation is necessary and useful for

the follow-up or extension of the project.

3. Future operation and maintenance The executing agencies, FoE Japan and GEF, will continue to provide information and

technical support to both Japanese buyers and tropical timber suppliers through the operation

of the FairWood Center. Financial sustainability of the Center will be achieved through

membership fees. The Center could also assist public agencies, which under the public

procurement policy revision in Japan described earlier must now consider the legality and

sustainability of wood, if funding is provided. The activities/services of the Center will be open

to all supplier countries.

-24-

PART IV. THE TROPICAL TIMBER FRAMEWORK

1. Compliance with ITTA 1994 Objectives

The Project will contribute to the following ITIO objectives as expressed in Article 1 of the

International Tropical Timber Agreement (ITIA), 1994:

Art. 1 (c) To contribute to the process of sustainable development;

The Project will contribute to sustainable development by promoting certification and legal

verification systems for tropical timber in Indonesia and Malaysia. In the process of obtaining

verification/certification suppliers will improve their management practices by following forestry

regulations and, in the case of certification, following broadly accepted principles of sustainable

forest management. In supporting the implementation of forest-related legislation and

regulations, the Project will contribute to combating illegal and destructive logging.

Art. 1 (d) To enhance the capacity of members to implement a strategy for achieving exports

of tropical timber and timber products from sustainably managed sources by the

year 2000;

The Project focuses on the export of tropical timber, aiming to promote imports by Japanese

traders of legal timber that has been sourced from sustainably managed tropical forests in

Indonesia and Malaysia.

Art. 1 (e) To promote the expansion and diversification of international trade in tropical timber

from sustainable sources by improving the structural conditions in international

markets, by faking into account, on the one hand, a long-term increase in

consumption and continuity of supplies, and, on the other, prices which reflect the

costs of sustainable forest management and which are remunerative and equitable

for members, and the improvement of market access;

The Project seeks to improve the structural conditions in international markets by promoting

credible certification and legal verification schemes as a voluntary means of differentiating

between sustainable/unsustainable, legal/illegal tropical timber. The Project will advocate that

Japanese buyers pay a "fair price" to assist in covering the auditing costs of certification/legal

verification.

Art. 1 (h) To improve market intelligence with a view to ensuring greater transparency in the

international timber market, including the gathering, compilation, and dissemination

of trade related data, including data related to species being traded;

The project will set up the FairWood Center as an information clearing house to promote trade

in CNL tropical wood. The Center will provide market intelligence related to the demand and

supply of CNL tropical wood and tools for buyers to avoid species and regions with high

environmental and social risks.

Art. 1 (k) To improve marketing and distribution of tropical timber exports from sustainably

managed sources;

The Project will promote the use of CNL wood in Japan to intermediaries, construction firms,

processors, consumers and other wood users.

-25-

Art. 1 (n) To encourage information-sharing on the international timber market.

The FairWood Center will operate a website that will be available to all potential suppliers of

CNL tropical timber and Japanese buyers. The FairWood Center will provide a medium for

information-sharing and will organize symposiums/seminars for buyers, suppliers and

consumers.

2. Compliance with ITIO Action Plan

The Project will make a significant contribution to the following elements and priorities of the

ITTO Action Plan:

a) Encourage and assist producing member countries to identify and address constraints

in their implementation of sustainable forest management and the sustainable

development of the forest industry to enhance the contribution of the forest sector to

national objectives

The Project seeks to increase demand from Japan for legal and sustainable wood. Because

Japan is a major importer of tropical wood, an increase in demand for legal/sustainable tropical

wood would encourage producer member countries to improve their forest management

practices toward sustainable forest management and the sustainable development of the forest

industry. The Project will also provide assistance to potential suppliers of CNL wood in

two producer member countries - Indonesia and Malaysia.

h) Encourage and increase the involvement of non-government stakeholders, including

industry and trade associations, environmental organizations and indigenous groups,

in the activities of the organization with a view to promoting transparency, dialogue and

cooperation in furthering ITTO's objectives.

Implementation of the Project will include a diverse group of stakeholders: governments, NGOs

in producer and consumer member countries, researchers and private sector organizations

including industry and trade associations. The composition of the Advisory Group reflects this

diversity of stakeholders and will enhance transparency and dialogue as well as encourage

pragmatic and balanced outputs that will contribute to ITTO's objectives.

The project relates to the following Goals and Actions of the ITTO Yokohama action plan

2002-2006:

GOAL 1: Improve transparency of the international timber market

Action:

2. Promote the collection and dissemination of accurate and timely trade and economic

data relevant to the global timber market, in cooperation with international

organizations and other sources, with a view also to reducing duplication where

possible.

7. Encourage members and assist them, where appropriate, to:

Cooperate with relevant organizations, including the private sector, NGOs and

others in gathering data;

-26-

GOAL 2: Promote tropical timber from sustainably managed sources

Action:

1. Promote public awareness of progress made in implementing sustainable forest

management and in the increased availability of tropical timber from sustainably

managed sources.

2. Provide a forum for discussion on non-discriminatory trade, subsidies for competing

products, shortcomings in enforcement of forest law and regulation, and other factors

that may affect the marketability and access of tropical timber products.

3. Monitor progress being made regarding the comparability and equivalence of

certification systems.

5. Examine the market and product requirements that may have to be met in order to

develop exports of added-value products.

7. Encourage members and assist them, where appropriate, to:

Develop awareness of progress made in implementing sustainable forest

management and in the increased availability of tropical timber from sustainably

managed sources

Develop awareness of market and end-use requirements for tropical timber.

Establish and maintain economic and fiscal policies that are conductive to the

competitiveness of the industry and trade in tropical timber from sustainably

managed sourc~s.

-27-

ANNEX A 1 Profile of executing agency - Friends of the Earth Japan

1. The Expertise of Friends of the Earth Japan

Friends of the Earth Japan is a non-governmental, non-profit organization. The field of

activities of the agency are as follows:

Vision

"towards the realization of sustainable society"

Research and Proposals

Researches the causes of global environmental problems, and make proposals to government

and business regarding concrete solutions to these problems.

- Climate Change and Energy

- IFIIECA Watch

- Forest/Forestry

Overseas Projects

Focuses Japanese attention on the environmental problems of specific areas. Informs people

about the actual nature of these problems. Cooperates with people in the affected areas to

work towards solving the problems.

- Far East Russia (nature conservation)

- China (desert greening)

Local Activities

Suggests environmental reforms through partiCipatory activities in each district. Builds the

national FoE Japan network through the activities of local groups.

- Reviving "Satoyama" Project

- Local group activities

Sustainable Communities Considers environmental problems from the perspective of our daily lives in our local

communities. Make suggestions on how our society should be, in preparation for a sustainable

future.

- Solar power project

- Waste investigation group project

- Learning from Germany project

Information and education

Disseminates information obtained from FoE Japan's national and international networks to

news organizations and citizens. Educates people in order to encourage action that benefits

the environment.

- Green Earth newsletter / e-mail magazine

- Events, Eco-tours, Hiking

- Publications

-28-

Managing Structure

The organization is made up of the Board of Directors, the General Assembly, the Auditors,

and the Secretariat.

2. Yearly Budget (Friends of the Earth Japan; as Non-Profit Organization) 2005 Revenue: ¥75,002,374

2005 Expenses: ¥71,438,533

The below is a list of funding sources over the past 3 years

- Charles Stewart Mott Foundation, USA private foundation

- National Land Afforestation Promotion Organization, Japanese Organization

- The Defense of Green Earth Foundation, Japanese private foundation

- Keidanren Nature Conservation Fund, Japanese private foundation

- Japan Fund for Global Environment, Environmental Restoration and Conservation Agency

3. Personnel-relating to Forest - 2 experts (post-graduate degrees)

- 2 middle level technicians (volunteer-base)

- 1 administrative personnel

Total: 5 personnel in forestry related fields

-29-

ANNEX A2 Profile of executing agency - Global Environmental Forum

1 . The expertise of the Executing Agency

The Global Environmental Forum (GEF) is a non-profit organization whose objective is to

conduct and support scientific research on global environmental issues such as global

warming and tropical forest protection and to disseminate those findings. Since its foundation

in May 1990, it has actively engaged in many research projects of environmental monitoring, in

raising public awareness of environmental pollution, and in the development of guidelines for

environmental management of businesses.

GEF has been conducting research projects on forest and desert issues over the past 10 years

commissioned by the Ministry of Environment, Japan for the funding scale of approximately

US$50,000 each year. The FairWood campaign, which GEF conducts in close relationship

with FoE Japan, has also been receiving grant from the Japan Fund for Global Environment in

the past two years for the amount of approximately US$42,000.

GEF has conducted a number of policy-related research projects funded by Ministry of the

Environment with the funding scale of approximately US$650,000 each year. For scientific

research projects, GEF receives commissions from the National Institute for Environmental

Studies for the funding scale of about US$ 1 million each year.

Auditors '--------'

GEF's activities include:

Imm-Hj[ Boam of Directors

Chairman President

Senior Executive Directors

i=I-lIl1Il[ Board of Trustees )

Tokyo Office Survey and

Planning

Tsukuba Research Institute

Scientific Research

1. Scientific and policy research regarding environmental problems

- Research on global environmental issues such as global warming and tropical forest

conservation

- Implementation of environmental monitoring activities - air, water, eco-systems

- Studies of corporate social responsibility (CSR)

- Development of guidelines for corporate environmental management and environmental

assessments

2. Partnership with journalists

- Secretariat of the Japanese Forum of Environmental Journalists

- Networking among environmental journalists around the world

- Support activities of TVE Japan (Television Trust for the Environment Japan Committee)

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3. Partnership with businesses

- Secretariat of the Business Leaders' Inter-Forum for Environment 21 (B-UFE21)

- Support activities of the Network for Sustainability Communication (NSC)

4. Environmental information dissemination

- Publication of the monthly environmental magazine, Global Net

- Publication of the "Environmental Data Book"

5. Support local and cross-border activities for the environment

- Cooperation with the Inter-governmental Panel on Climate Change (IPCC)

- Support the research and overseas dispatch of environmental experts in Japan and other

countries

- Secretariat of the Japan Trust for Global Environment

2. Yearly Budget 2004 Revenue: ¥600,971,000

2004 Expenses: ¥595,984,000

3. Personnel-relating to Forest

- 1 expert, doctor's degree

- 2 experts, graduate degrees

Total: 3 experts in forestry related fields

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ANNEX B Curricula Vitae of the Key Personnel

1) Project Coordinators

Tokiharu OKAZAKI, Vice Executive Director, FoE Japan

Graduate from Tokyo University in 1960 and engaged in economic development projects for

more than 30 years. Joined NGO at age 60.

Active in most fields of environmental issues, especially forestry.

Councilor of Sustainable Green Ecosystem Council (SGEC) - the Japanese Forest

Certification Council.

Member of Committee on Combating Illegal Logging of JFW

ITTO registered NGO member

Kenichi NAKAZAWA, Director of Forest Program, FoE Japan

Graduate (Masters degree) Tokyo Metropolitan University

Received Environment Minister Award on Forest/Forestry Advocacy in 2003

PartiCipated FLEG-Asia and AFP meetings in 2002-2004

Wood Procurement Policy Research in UK, EU and North-American west coast.

Junichi MISHIBA, Campaignerlresearcher of Forest Program, FoE Japan

Graduate Tsukuba University in 2003 (Master of Environmental Sciences)

Japan Overseas Cooperation Volunteer, Ghana: 1998-2000.

PartiCipated in AFP meetings in 2004

Yuki SAKAMOTO, Research Co-ordinator, Global Environmental Forum

Graduated from the Department of Foreign studies, Sophia University

Engaged in Research on Environmental Considerations related to Overseas Activities of

Japanese Companies in 1995-1999

Engaged in Siberia Forest Campaign of FoE-Japan in 1999-2000

PartiCipated in AFP meetings in 2003-2004

Kanna MITSUTA, Research Co-ordinator, Global Environmental Forum

Graduate Tokyo University in 1991

Research coordinator, Global Environmental Forum: 1991-2001, 2004-

Research on Enhancement of Sustainable Forest Management commissioned by Japanese

Environmental Ministry in 1993-2000

Case studies of sustainable community development commissioned by Japanese

Environmental Ministry in 1995-1997

Deputy Director, Environment Analysis Department, Japan Bank for International

Cooperation (JBIC): 2001-2003

Member of Advisory Council of Environmental and Social Considerations Review of Japan

International Cooperation Agency (JICA): 2004-

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2) National Consultants Name SCHEYVENS Henry Date, Place of 05 October 1965, Palmerston North, New Zealand Birth, Nationality Contact Details Email: scheyvens@iges.or.jp. ph: +81-46-878-9026 Current Position Policy Researcher and Co-manager, Forest Conservation Project, Institute

for Global Environmental strategies (Japan) Field and BSc (Hons), Physical Geography, Massey University institution of MPhil, Development studies, Massey University graduation PhD, Political Science, Monash University Relevant work Regional review of forest certification in Asia-Pacific region. Coordinating undertaken in field assessments on certification in PNG, Lao PDR and Indonesia. last three years

Name LOPEZ-CASERO Federico Date, Place of 17 August 1970, Muenchen, Germany Birth, Nationality Contact Details Email: lopezcasero@iges.or.jp. ph: +81-46-855-3836 Current Position Policy Researcher, Forest Conservation Project, Institute for Global

Environmental strategies (Japan) Field and BSc, Political Science, Universitaet Augsburg (University of Augsburg) institution of MPhil, Political Science, Universitaet Augsburg (University of Augsburg) graduation PhD, Environmental Sciences, The University of Tokyo Relevant work PhD dissertation on public policies for sustainable forest management in undertaken in Switzerland and Japan. Conducting research on illegal logging and timber last three years trade issues in Japan and the Asia-Pacific region.

3) Local Partners and consultants Name BUJANG Mark Date of Birth 16 October 1975 Place of Birth Kuching, Sarawak, Malaysia Nationality Malaysian Contact Details Email: snanet@tm.net.my Phone: +6085423044 Fax: +6085438580 Current Position Programme Coordinator and GIS Technician at Borneo Resources Institute

(BRIMAS) Training BSc. Majoring in Geology, ESRI Trained in Geographic Information System

(GIS) Applications Relevant work Coordinating BRIMAS' programs and activities i.e. community organizing, undertaken in para-legal training, community based mapping activities, community based last three years resource management activities.

One of the ordinary members of the board of the Non-Timber Forest Products Exchange Programme (NTFP-EP), a regional network of NGOs and CBOs in Southeast Asia and South Asia promoting the sustainable use and conservation of NTFPs. Currently facilitating the Sarawak Penan Association (SPA) in implementing their UNDP Small Grants Project for the Protection of Tropical Forests.

Name Eng Weng Hong Date, Place of 8th February 1948, Seremban, Negeri Sembilan, Malaysia. Birth, Nationality Nationality: Malaysian Contact Details Email: engwh@tm.net.my Telephone: +6088 240 853 Fax: +6088 260 853 Educational Bachelor of Science in Physics & Mathematics Background Bachelor of Science in Civil Engineering

Master of Science in Forest Engineering I Forestry Current Position Managing Director, KiwiHeng Wood Industry Consultants Sdn Bhd.,

KiwiHeng Environmental Consultants Seminar 1. Paper 'Glue Lamination & LVLApplications in the Construction of Portal Presentation Frame structures' in FRIM (Forest Research Institute Malaysia) - 1992

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2. Paper 'Wood Residues for Power Generation in relation to maximum utilization for wood recovery and market demand for products' in FRIM -1993

3. Paper at FRIM Seminar 'Wood Waste Utilization in Sabah' - 1997 Relevant work 2001 - Present undertaken in 1. Qualified assessor and auditor of forest under FSC (Forest Stewardship last three years Council), MTCC (Malaysian Timber Certification Council),

2. Qualified assessor and auditor in CoC (Chain of Custody) for manufacturing mills (sawmills, plywood, MFD, chipmill)

3. Completed pre-assessment work on 3 FMUs (Forest Management Units) and CoC for 3 mills in Sabah, Malaysia

2002 - Present Developed product research and finally marketed structural finger jointed truck flooring using Acacia mangium

2005 Technical consultant for Forestadora Tapebiuca (Sawmill and Plywood) in Buenos Aires, Argentina

2006 Work with Malaysia Forest & Trade Network (MFTN) on CoC for garden furniture manufacturer in Sarawak, Malaysia

Name Arbi VALENTINUS Date, July 9th, 1972 Place of Birth, Pematang Siantar, Indonesia Nationality Indonesia Contact Details Email: wedha@telapak.org ph: +62811117143 Current Position Co-Manager, Forest Projects, TelapaklEIA

Political Director, Telapak Training Marine Science and Technology, Bogor Agricultural University (IPB).

Environmental Science, Lawalata IPB. GIS Mapping and Analysis, Participatory Mapping Working Group (JKPP) and Forest Watch Indonesia (FWI). Forest Crime Investigation, TelapaklProbela Network. Forest Crime Documentation, Environmental Investigation Agency (EIA). Timber Tracking (Chain of Custody/CoC) Assessor, Indonesia Ecolabel Institute (LEI). Timber Identification and Timber Administration System, Ministry of Forestry (MoF). Application of Anti Money Laundering Law on Forest Crime, Indonesia Working Group on Forest Finance (IWGFF).

Relevant work Investigations of illegal logging in Indonesia and cross border illegal timber undertaken in trade/smugglings from Indonesia in Asia Pacific region. last three years Lobby work in relevant initiatives and meetings on illegal logging with the

government, trade, and NGOs representatives; principally FLEG East Asia Pacific (FLEG-EAP), Asia Forest Partnership (AFP) , and EU-FLEGT initiatives. Key person within Telapak for certification issue, with a full knowledge in chain of custody (CoC) and sustainable forest management (SFM) certification. Research on forest/timber certification monitoring in Indonesia. Developing timber legality verification standard as team member of Indonesia stakeholders working group which consisting of representative of NGOs, certifiers, government, academician/expert, and forest practices/business/trade representatives.

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Name PoerbaChristian Date, Place of 12 Dec 1972, Pematang Siantar, Indonesia Birth, Nationality Contact Details Email: bob@fwi.or.id ph: +628121105172 Current Position Executive Director Forest Watch Indonesia Training Field Investigation, Management Data and Information Relevant work Experience of similar activities as a project coordinator and executive director undertaken in ofFWI: last three years Developing GIS and Remote Sensing To Update Forest Spatial Data".

The project aimed at a) identifying the types of information generated by remote sensing that are relevant to the network's needs; b) developing remote sensing based forest condition monitoring system and GIS-based forest performance monitoring system; c) updating spatial data on forest condition, including vegetation and non-vegetation maps and forest cover maps; and d) updating spatial data on concession and forest use maps, including HPH, HTI and plantation maps. Updating Papua's Biodiversity Habitat Information By using Remote Sensing Technology". This project is a model of collaborative effort between a Government institution, International and National NGOs. It is also probably the first had ever been done on this specific subject, especially for BAPLAN. The idea was to update existing knowledge of Papua biodiversity to add its conservation value through analyses of its forest cover. Promotion of Ecologically-Sustainable Socially-Equitable and Economically-Viable Forest Management in Indonesia through Implementation of Credible Forest Certification System" was a collaborative work of AMAN, LEI and FWI. The specific objectives are (1) to strengthen indigenous people in the context of forest certification under the co-ordination of AMAN); (2) to develop data-based forest certification monitoring network under the co-ordination of FWI; and (3) develop a community-based forest certification system under the co-ordination of LEI.

Name Chee Tong Yiew Date, Place of 15, July 1946; Penang, Malaysia; Malaysian Birth, Nationality Contact Details Email: tychee@genet.po.my ph: +603 79572997 Current Position Manager, Forest and Wetlands Programme with Global Environment

Centre(GEC), Training Forester by profession (Institute of Foresters Malaysia) Relevant work Before joining GEC in 2002, for 35 years was with the Forestry Department undertaken in of the Government of Malaysia, the last position was serving as the Director last three years of Special Function with responsibility include planning and producing

promotional materials for the dissemination of information to create/stimulate public awareness on forestry, develop forestry related eco-tourism programmes, information centres, facilities and infrastructures in forest recreational parks. In addition was involved in the projects to create multi-disciplinary involvement in promotional activities for Eco-tourism, environmental protection and development, and socio-economic benefits from forestry activities. Was a member of the team in developing the Malaysian Criteria and Indicators (MC & I) for Sustainable Forestry Management in Peninsula Malaysia. A forester by profession with special skills in partiCipatory approach to community forestry. Currently, working as the Manager for the Forest and Wetlands Programme with Global Environment Centre, managing all peatland related projects, particularly, Leader of the South East Asia Regional component for the UNEP-GEF project on Integrated Management of Peatland for Biodiversity and Climate Change (2003-2006), successfully· developed the ASEAN Peatland Management Initiative (APMI} creating a

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framework for peatland sustainable use and conseNation activities in the region and the ASEAN Peatland Management Strategy (APMS) and a key member of the Monitoring and evaluation team to review and guide the implementation of the US$3.4 Million project on Climate Change Forest and peatlands in Indonesia. As a member of the Project Team designed and developed a USDS.8 million IFAD/GEF Project on "Rehabilitation and Sustainable Use of Peatlands in Southeast Asia" under the framework of the APMI and APMS for member countries in the ASEAN Region for the period of 2006-201.For the project development had conducted extensive consultations with key stake-holders in the countries of the ASEAN Region

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ANNEX C Terms of reference for consultants and experts

Terms of Reference for Japanese Consultant Demand side study in Japan (Activity 1-1-1)

1. Purpose The purpose of the activity is as follows:

• to acquire preliminary information for risk assessment tools;

• to gather opinions for the design of tools that assist Japanese businesses to develop

wood procurement policies; and

• to promote participation from businesses in planned workshops and the information

clearinghouse (FairWood Center).

2. Output The consultant should identify the current Japanese buyers/users of wood-products from

Indonesia and Malaysia that could participate in the project. The consultant should also gather

opinions from the private sector on the design and contents of the tools.

3. Activities A study team for the activities will be organized by FoE Japan, GEF and the consultant.

The consultant is expected to provide technical advice to the team and to assist the interview

survey.

The study team will select 20 companies based on existing procurement data and reports.

The consultant will visit the companies and conduct interviews. During the visit, the current

situation of illegal/destructive logging and international efforts to address the issues should be

clearly explained. The following information should be gathered:

type of wood-products that the company deals with (volume, species, suppliers and origin);

consciousness of environmental and social aspects of wood production;

opinions of the Project;

opinions of the planned tools;

willingness to pay for the additional cost of certified/legally verified products; and

willingness to participate the project.

The consultant should compile a report based on the interviews and data gathered.

4. Period The study will be conducted in the first 3 months of the project.

5. Prequalification The consultant should be familiar with timber product circulation in Japan.

6. Man Month 3 M/M will be allocated to the consultant.

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Terms of Reference for Indonesian and Malaysian partners conducting collection of environmental and social information on forest (Activity 1-2-1, 1-2-2)

1. Purpose The purpose of the activity is to prepare a guidebook that will provide environmental and social

information on wood/wood products from tropical forests.

2. Output Maps, data, and fact sheets will be prepared that show the degree of risks of tropical

timber/forest according to species and location regarding illegal/destructive logging using

labels such as "high risk", "medium risk" and "Iow risk."

3. Activities The following activities should be conducted:

• gather and analyze the existing data and report on the issues relating to environmental

and social risks associated with tropical timber/forests such as illegal/destructive

logging;

• classify the results of 1) by types of products, species and origin; and

• compile risk assessment tools such as maps, data, or fact sheets, which show risk of

illegal/destructive logging by types of products, species and origin.

The "partners" will work with the "task team" for their respective countries and will collaborate

with all team members to improve the quality of the output.

4. Period The first 6 months of the project

5. Prequalification The consultant should be familiar with environmental and social implications of tropical wood

production in the supplier countries.

6. Man Month 9 M/M

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Terms of Reference for identifying potential companies in Indonesia and Malaysia (Activity 2-1-1 and 2-1-2)

1. Purpose The purpose of the activities is to identify potential companies for acquiring certification/legal

verification.

2. Output The outputs will be a report that describes the obstacles to introducing certificationiverification

systems based on a survey of major companies in the respective country, a matrix for

identifying potential companies, the names of companies and how they can be approached

and encouraged to partiCipate further in the Project.

3. Activities The following activities will be conducted by national experts that provide consultancy services

and the executing agencies.

• Survey 5 major companies in the respective country and conduct interview research on

their product lines, their production processes and their interest in forest

certification/legal verification schemes.

• Develop a matrix for selecting companies that have the potential to acquire

certification/legal verification and supply the Japanese market.

• Employ this model for identifying companies that could participate further in the Project

in order of suitability.

• Compile a report that describes 1) the obstacles to introducing certification/verification

systems in the respective country based on the company survey, 2) the matrix, 3) the

names of companies with potential to acquire forest certification/legal verification, and

4) options for how they can best be approached.

4. Period The study will be conducted in the third and fourth quarter of the first year of the project.

5. Prequalification The consultant should be familiar with the domestic timber business sector in Indonesia and

Malaysia, respectively.

6. Man Month Activity 2-1-1 3 M/M

Activity 2-1-2 1 M/M

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Terms of Reference for providing support in introducing certification and verification systems to Indonesia and Malaysia (Activity 2-2-1, 2-2-2 and 2-2-3)

1. Purpose The purpose of the activities is to provide assistance to potential suppliers of CNL wood to the

Japanese market to acquire certification/legal verification through phased approaches.

2. Output The outputs will be a model plan for acquiring certification/verification and an announcement

through the website of the action plans of the participating companies.

3. Activities The activities will be conducted by business-oriented NGOs that provide consultancy services.

• Approach 3 suppliers in Indonesia and Malaysia (total 6) that have potential to shift

towards supplying certified or verified wood.

• Link these suppliers with potential buyers in Japan through the FairWood Center.

• Discuss available certification and verification systems with the participating companies

and potential buyers and facilitate them to select the system that best meets their

capabilities and needs. The contracting agency will show no bias towards any particular

scheme during communications and discussions with the participating companies in the

supplier countries and potential buyers in Japan.

• Provide guidance for developing and implementing action plans to achieve

certification/verification.

4. Period The second 12 months of the project

5. Prequalification The consultants should have expertise in developing action plans and applying phased

approaches to certification/legal verification in the respective countries.

6. Man Month Activity 2-2-1 1 M/M

Activity 2-2-2 12 M/M

Activity 2-2-3 6 M/M

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county Japan

Indonesia

Malaysia

ANNEX D List of the advisory group members

Sector Government

Private

Civil society

Government

Private

Civil society

Government

Private Civil society

Name and organization Mr. Hideaki TAKAI Forestry Agency of Japan Mr. Koji KADOYA Japan Federation of Wood Industry Associations (JFWIA) Dr. Takeshi TOMA Forestry and Forest Products Research Institute (FFPRI) Mr. Harry Budiman (to be confirmed) Forestry Production Management Division, Ministry of Forestry, Republic of Indonesia TBD BRIK Mr. Christian Purba Forest Watch Indonesia (FWI) Mr. Ahmad Loman Undersecretary of Timber Industries Division, Ministry of Plantation Industries and Commodities TBD Mr. Ch en Hin Keong TRAFFIC South East Asia

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ANNEX E Existing certification/verification initiatives in Indonesia

a) Lembaga Ekolabellndonesia (The Indonesian ecolabeling institute) Certification

The Indonesian Ecolabeling Institute (LE I), as an accreditation body for natural resource

certification schemes, has been developing certification systems for natural forest production,

forest plantations, community-based forest management and chain of custody since 1994.

A regional network for monitoring and supporting the implementation of certification has been

established covering 14 Provincial Communication Forums. In October 2004, through a

multi-stakeholder Congress, LEI became a Constituent Based Organization (CBO), with

representatives from NGOs, indigenous people, academics and the private sector.

This transformation has expanded LEI's role in developing certification systems in forestry as

well as in marine and agricultural products. LEI will also play a role in promoting conflict

resolution and policy advocacy.

b) Forest Stewardship Council (FSC) There are three FSC certified forests: two natural forests in Riau province in Sumatra and in

East Kalimantan and a teak plantation in Sulawesi. The latter is under community-based forest

management and was supported by TFT to acquire certification. FSC CoC certification has

been issued to 29 factories.

c) Mandatory Sustainable Forest Management Verification The Ministry of Forestry has started a mandatory verification program from December 2002 to

assess performance of FM Us as concession holders. The assessment is conducted by

independent assessor institutions, using the criteria and indicators which were developed by

the Ministry. The mandatory verification program has been applied to natural forests and

plantation forests. The verification process was completed in 124 FMUs in natural forests and

90 FMUs in plantation forests by November 2004. The ministry has also developed and started

a mandatory verification program for forest product industries in 2004. The assessment of

39 industries was completed by November 2004.3

d) Legality Standard and Verification system

The development of a legality standard and verification system is being carried out under the

auspices of the Indonesian Ministry of Forestry in close partnership with The Nature

Conservancy (TNC) under the Indonesia-UK Memorandum of Understanding on Illegal

Logging, with participation from SGS and URS Forestry. Financial support was provided by the

UK Department for International Development (DFID), the US Agency for International

Development (USAID) and The Home Depot. A draft legality standard, resulting from

stakeholder consultations, that describes the requirements for legal timber from Indonesia, was

announced in May 2003, but is still to be finalized and implemented. TNC also developed a

computerized wood tracking system using barcodes that is being tested by PT. Sumalindo in

East Kalimantan.

e) Badan Revitalisasi Industri Kehutanan (BRIK, Forest Industry Revitalization Body)

During 2002 Indonesia established an organization to revitalize the forest industry (BRIK)

which is responsible for controlling the export of timber products. All exporters must be a

3 Based on key informant interview conducted by FoE Japan.

-42-

member of BRIK and must document the origin of the wood when exporting.

f) Phased approach to certification ITTO is promoting the development and promotion of phased approaches to certification to

address the current problem of tropical developing countries lagging behind in forest

certification. ITTO convened an international workshop on phased approaches to certification

on 19-21 April 2005 in Bern, Switzerland.

The objectives of this workshop were to:

• solicit views, facilitate consultations and promote a better understanding of phased

approaches to certification among buyers, government agencies with timber

procurement poliCies, certification schemes and other stakeholders;

• raise awareness among governments, markets, donor agencies, NGOs, multilateral

development banks and international organizations on the merits and benefits of

phased approaches to certification and possibilities to encourage their implementation;

and

• facilitate understanding of procurement policies of buyers and public agencies as

related to certification and the implications of such policies for tropical timber

producers.

Other business-based organizations (TFT and GFTN) have developed phased approaches

and are supporting tropical forest managers to implement these with funding from their

European members. In Indonesia, GFTN established Nusa Hijau as an alliance between VWVF

Indonesia and forest coordinators, wood processors, forest products traders, specifiers and

end-users operating in Indonesia. TFT has established its own CoC system that extends from

the harvesting site to the European buyers.

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ANNEX F Existing certification/verification initiatives in Malaysia

a) Malaysian Timber Certification Council (MTCC)

The Malaysian Timber Certification Council (MTCC) is an independent organization that started

operations in January 1999 to develop and operate a voluntary and independent national

timber certification scheme in Malaysia.

The original MTCC forest certification standard - MC&I (2001) - was based on 1998 ITTO

Criteria and Indicators for sustainable management of natural tropical forests. MTCC has

developed a new standard - MC&I (2002) - which draws on the principles and criteria of the

Forest Stewardship Council. 4.73 million ha, or 33% of total permanent reserved forests in

Malaysia, are certified by MTCC. Eight FMUs in Peninsular Malaysia and one in Sarawak have

been certified.

The National Steering Committee (NSC), which consists of representatives from the timber

industry, academia and research institutes, NGOs and government agencies, is working

towards PEFC endorsement of the MTCC scheme. In order to receive this endorsement, the

institutional set-up and CoC are being reformed. Another initiative is to transform the NSC into

an FSC-endorsed national working group to develop an FSC national standard.

b) Forest Stewardship Council (FSC) There are three FSC certified forest management units in Malaysia: two in Peninsular Malaysia

and one in Sabah. FSC CoC certificates have been issued to 61 factories. The FSC certified

forest in Sabah is the Deramakot Forest Reserve of the Sabah Forestry Department.

The Forestry Department organizes web-based auctions to sell the certified timber. Recently,

the main buyers are European companies that want FSC certified timber for furniture. A green

premium is being paid for this timber.

c) Phased approach to certification Tropical Forest Trust (TFT) Tropical Forest Trust (TFT) provides a phased approach to FSC certification. Their activities

are driven by the demand of European buyers. TFT requires their suppliers to develop an

action plan to acquire FSC certification. While implementing the action plan, the supplies are

allowed to supply their products as TFT proofed wood. In this unique scheme, TFT provides

suppliers with European market linkages as an incentive to achieve FSC certification.

TFT has three project sites in Sabah: two are natural forests and one is an Acacia mangium

plantation. They also offer an independent timber tracking system called TracElite, which uses

barcodes and satellite data transfer.

Malaysia Forest and Trade Network (MFTN)

Malaysia Forest and Trade Network (MFTN) is a member of the Global Forest and Trade

Network, which is organized by WWF. MFTN supports its members through a phased

approach to acquire full FSC certification.

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ANNEX G Consultations in Indonesia

Period: May 8 to May 20, 2005

Cities: Jakarta, Bogor

Bureau of International Cooperation and Investment, Ministry of Forestry

Mr. Bambang Murdiono

Ms. Sri Murniningtyas

Asia Pacific FLEG Secretariat

Or. Ir. Agustinus W. Taufik

Center for Standardization and Environment

Mr. Tri Joko Mulyono

Mr. Sigit Pramono

BRIK

Ms. Ora. Soewarni

Mr. Njoto Suhardjojo

Mr. A. Irwan Aten

Mr. Ir. Zulfikar Adil

Mr. Jimmy Purwonegoro

LEI

Mr. Taufiq Alimi

Mr. Oaru Asycarya

CIFOR

Or. Krystof Obidzinski

Mr. Ferdinandus Agung Prasetyo

European Union

Mr. Vernon Copeland

Illegal Logging Response Center

Mr. Micheal Jaeger

NGOs

Mr. Moray Mcleish, The Nature Conservancy (TNC)

Mr. Yudi Iskandarsyah, , The Nature Conservancy (TNC)

Mr. Patrick Anderson, WALHI

Mr. Rully Syumanda, WALHI

Mrs. Farah Sofa, WALHI

Mr. Arbi Valentinus, Telapak

Mr. Ridzki R. Sigit, Telapak

Mr. Harry Gunawan, Telapak

Mr. E.G. Togu Manurung, Forest Watch Indonesia

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Mr. Christian Purba, Forest Watch Indonesia

Mr. Hugh Blackett, Tropical Forest Trust (TFT)

Mr. Nurcahyo Adi, WWF Indonesia

Mr. Irwan Gunawan, WWF Indonesia

Mr. Yoga Sofyar, an activist researching forest matters in East Kalimantan.

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ANNEX H Consultations in Malaysia

Period: March 27 to April 4, 2006

Cities: Kuala Lumpur, Sandakan, Kuching, Miri

<Peninsular Malaysia>

Malaysian Timber Council

Ms. Aimi Lee Abdullah

Ms. Siti Syaliza Mustapha

Malaysian Timber Certification Council

Dato Dr. Freezailah Che Yeom

Mr. Chew Lye Teng

Mr. Harnarinder Singh

Malaysian Timber Industry Board

Ms. Norchahaya Hashim

Mrs. Ruzainah Abdul Jalil

Ministry of Plantation Industries & Commodities

Mr. Mohd Zulkarnain Abd. Kadir

Malaysian Timber Certification Council (MTCC)

Mr. Chew Lye Teng

Mr. Harnarinder Sigh

Forestry Department of Peninsular Malaysia (FDPM)

Mr. Yap Yee Hwai

Forest Research Institute Malaysia (FRIM)

Dr. Shamsudin Ibrahim

Mr. Wan Hohd Shukri Wan Ahmad

NGOs

Ms. Moi See, WWF Malaysia

Mr. Faizal Parish, Global Environment Centre

Mr. Chen Hin Keong, TRAFFIC South Eeat Asia

<Sabah>

Sabah Forestry Department

Mr. Frederick Kugan

Mr. Albert Radin

Mr. Jeflus Sinajin

Mr. Roslan Junaidi

Mr. Joseph Vun

Mr. Nordin Daling

Mr. Christopher A. Matunjau

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Industries

Mr. Raymund Tan Get Seng, Sasaran Ehsan Utama Sdn. Bhd.

Mr. Andrew Garcia De Chavez, Rakyat Berjaya Sdn. Bhd

Mr. Robbie Makajil, Rakyat Bedaya Sdn. Bhd

Mr. Richard Yong, Anrobois (Sabah) Sdn. Bhd.

Mr. Y P Chua, Sabah Timber Industries Association

Mr. P J Tan, Sabah Timber Industries Association

Mr. Victor Xavier, Sabah Timber Industries Association

Mr. Lee Yin Poh, Sabah Timber Industries Association

Mr. Stephen Chaw Zie Shing, Sabah Timber Industries Association

Ms. Brenda Wong, Sabah Timber Industries Association

Mr. Mohd Daud Tampokong, Kumpulan Yayasan Sabah Group

Mr. Tan Peng Juan, Superwoodawmill Sdn. Bhd.

Mr. Victor P. Xavier, Jayakuik Sdn. Bhd.

Mr. Bill Maynard, Malaysia Sdn Bhd, Global Forestry Services

Mr. Jason Lim, Malaysia Sdn Bhd, Global Forestry Services

Mr. Hugh BlackeU, Tropical Forest Trust

NGOs

Ms. Linda Edward Giyung, WWF Malaysia, Kota Kinabalu

<Sarawak> Sarawak Forestry Corporation

Mr. Liew Tchin Fah

Mr. Zulkifli Baba Noor

Mr. Sani Bakar

Ms. Elaine Tan

Mr. Liew Tchin Fah

Sarawak Timber Association

Dr. Lee Hua Seng

Mr. Barney Chan,

Ms. Celina Yong

Industries

Mr. James K.S. Chan, Harwood Timber Sdn Bhd.

Mr. Ibrahim Haji Bero, Hardwood Timber Sdn. Bhd.

NGOs

Mr. Thomas Jalong, Sahabat Alam Malaysia (SAM)

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1 st

year

2nd

year

ANNEX I Proposed Project Framework

JAPAN TROPICAL COUNTRIES

Analyze industries Analyze Environmental/ Social Risks

~ Report I ..... I Guidebook I

I 2 Workshops ; 'V

FairWood Center in Japan

Support buyers Support suppliers to overcome obstacles to

to procure certified wood "'1 certification/legal verification

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ANNEX J Procedure for identifying on 1 or 2 potential companies to begin trading in C/VL wood

20 Japanese companies interviewed

Trading (5) Wholesale (5)

Merchants (5) Manufacturers (5)

Others

Workshops

10r 2 companies

10 Indonesian companies interviewed

~ Loggin.g ~ companies

Factories -l 3companr

3 companies

~ - 10 Malaysian companies "I interviewed

~ Loggin.g ~ companies

I Factories

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ANNEX K Recommendations of the 31st Expert Panel and summary of the modifications

(i) Undertake further consultations with relevant stakeholders in Malaysia;

A three person team (one person each representing FoE Japan, GEF and IGES) conducted a

round of consultations in Malaysia from 27 March - 4 April 2006. The consultation team visited

each of the three regions of Malaysia (Peninsular Malaysia, Sabah, Sarawak), which have

separate forestry departments and forest regulations. In all three regions the team discussed

the Project with representatives from government, the private sector and NGOs. The names of

the people who participated in the consultations are listed in annex H of the proposal. The team

also conducted extensive discussions with indigenous people residing in forested areas in

Sarawak.

(ii) Refine the overall formulation of the proposal with a view to achieving its balanced

presentation, taking due account of the results of consultations in Malaysia;

We have used the consultations in Malaysia to refine the overall formulation of the proposal.

In addition, we have undertaken a considerable extent of rewriting of the major components of

the proposal to incorporate the information and views garnered during the consultations.

(iii) Further refine the problem tree, taking into account the issues relating to the lack

of green premium and high costs of sustainable forest management and

certification in the tropics;

We have refined the problem tree taking a broader view of the challenges to raising demand for

certified and legally verified wood. The problem tree identifies low premiums and the high

compliance and auditing costs of forest certification as major constraints. The Project

acknowledges that the proposed FairWood Center will have to address these issues as a high

priority.

(iv) Elaborate social aspects of the proposal and its impact on local people;

We have elaborated the social aspects of the proposal and its impact on local people in section

"2.8 Social aspects." Our discussion explains the consequences for local people of illegal and

destructive logging and highlights the potential benefits to local people when management

frameworks to produce certified/legally verified wood are implemented.

(v) Further analyze the potential risks relating to the economic viability of CNL

tropical wood, potential impact on imports of tropical timber into Japan and

cooperation required from Indonesia and Malaysia;

The modified proposal highlights that the tropical wood industry has a poor international image

and will continue to be under threat unless this image can be improved. CNL systems are a

means of bringing greater credibility to tropical wood and reversing the trend of declining

imports by Japan.

We have interpreted the Expert Panel's expression "Indonesia and Malaysia" to mean all

potential collaborators in these two countries, not just their governments. The proposal

describes the cooperation required from Indonesia and Malaysia under section "2-3 Project

strategy", "4. Activities", "6. Work plan" and "Annex C. A terms of reference."

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(vi) Provide appropriate measures to ensure that no biasness will arise in the gathering,

collation and dissemination of information and that the proposal would be open to

all credible standards and/or certificate and verification systems;

The Project will recruit independent research bodies in both Indonesia and Malaysia to

scrutinize the data/information that will be used to compile the guidebook of species, regions

and products. The Project will recruit recognized business-oriented NGOs in Indonesia and

Malaysia, with expertise in implementing forest certification and legal verification schemes.

The Project will be advised by these organizations as to which certification/legal verification

schemes are most appropriate to the participating companies and their potential markets in

Japan.

(vii) Increase the contributions of the Executing Agencies to the overall budget of the

proposal.

We have complied with this request. See section "7. Budget."

Note:

Extensive revisions to the proposal have been made in line with the requests from the

Expert Panel. In addition, to sharpen the focus of the proposal we have removed extraneous

information from some parts and added information to others as necessary. We have also

sought to improve the level of English throughout the proposal. However, we have only

underlined those sections of the proposal where additions or modifications to the content were

made, and not where modifications were merely to improve the English.

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ANNEX L Request for letters of consent to the governments of Indonesia and Malaysia

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-54-

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-56-

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ANNEX M Draft agenda of the workshop

The aims of the workshop are to inform Japanese companies of the objectives and activities of

the Project. the need for sustainable forest management. existing certificationiverification

schemes and the social and environmental situation of the producer countries related to the

forest industry. Workshops will be held in the beginning of the second year of the Project in

Tokyo and in Osaka. The workshops will be widely advertised to timber/timber product-related

companies through e-mail. facsimile, Internet and, if necessary, post. The expected number of

participants is approximately 150 - 200.

Tentative workshop agenda

1. Introduction of the ITTO Project "PROMOTING AND CREATING MARKET DEMAND FOR

CERTIFIED TROPICAL WOOD AND VERIFIED LEGAL TROPICAL WOOD" by the

Executing Agency.

2. Description of forest management in Indonesia and Malaysia by government officials from

the respective countries.

3. Explanation of all certification and verification schemes available in Indonesia and Malaysia,

coordinated by IGES.

4. Report of experiences of Japanese companies that have achieved forest management

and/or CoC certification by industry representatives.

5. Open discussion of the needs and concerns of Japanese industries related to

certification/verification, moderated by the Executing Agency.

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ANNEX N Procedure for selecting companies in Japan and in producer countries

Japanese companies

The following two options will be used for selecting Japanese companies:

1) Self-selection by companies

Any company can register their interest in participating in the Project by contacting the

Executing Agency. The Project will provide opportunities - workshops and interviews -

specifically for companies to register their interest.

2) Efforts by the Executing Agency to elicit company participation

The Executing Agency will actively seek out and select companies considering the following

criteria.

Companies have:

~ more than 1.000 employees

~ a website

~ an environmental reportlsustainability report for high grade compliance

~ a procurement policy

~ announced its procurement policy to the public through the Internet or in printed form,

e.g., annual report.

Precondition: companies that procure tropical timber/timber products

Companies in producer countries

Nine criteria will be used to objectively select companies in the producer countries. Some of the

criteria are compulsory Ca) and others are optional Cb and c). The Project will select companies

that meet the preconditions and the greatest number of optional conditions.

a) Preconditions of companies are to have:

~ no record of law violation in the last three years.

~ all the necessary documents for compliance of their business

b) Companies should have either:

~ an annual report that shows steps taken to improve environmental performance

~ plans to further improve environmental performance including itemization of expenditure

specific to these plans in the company budget

~ ISO 9000 or 14000 series certification

~ JAS certification

c) It is desirable that companies:

~ are conducting business with Japan

~ are aware of certification and legal verification

~ have appointed an environmental officer

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ANNEX 0 Recommendations of the 32nd Expert Panel and summary of the modifications

All new modifications to the text are underlined.

1. Provide written evidence of consent and agreement for the proposal by the

Governments of Japan, Indonesia and Malaysia as well as other stakeholders.

We have sent requests for letters of consent to the Governments of Indonesia, Malaysia and

Japan. We are waiting to receive letters of consent from the Governments of Indonesia and

Malaysia (see Annex L for copies of our requests). The letter of consent by the Government of

Japan is attached as the cover letter of this proposal.

2. Provide appropriate measures to ensure that no biasness will arise in thel)athering,

collation and dissemination of information and that the proposal would be open to all credible standards and/or certificate and verification systems.

The following statement has been added to the "Terms of Reference for providing support in

introducing certification and verification systems to Indonesia and Malaysia" on p. 40.

"Discuss available certification and verification systems with the participating companies and

potential buyers and facilitate them to select the system that best meets their capabilities and

needs. The contracting agency will show no bias towards any particular scheme during

communications and discussions with the participating companies in the supplier countries and

potential buyers in Japan."

A draft agenda for the workshops to be held in Japan has been added as Annex M. Item 3 of the

agenda is "Explanation of all certification and verification schemes available in Indonesia and

Malaysia."

To ensure that data is collated, analysed and disseminated objectively, each of the task teams

(see p. 23) has been reorganised to include independent, recognised research institutions that

will advise on these activities.

3. Amend reference to low public awareness of forest issues in producing countries

to include consuming countries as well.

With reference to "Iow public awareness" the problem tree is attempting to explain why there is

low demand for CNL wood in Japan. The original statement in the problem tree "Iow public

awareness of forest issues in producer countries" was intended to mean that Japanese

consumers have low awareness of forest issues in producer countries (not that consumers in

producer countries have low awareness). We have altered the original text to read

"Low Japanese consumer awareness of forest issues in producer countries" to more correctly

convey our intended meaning.

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4. Delete the reference made to the studies by WWF, 2002 and EIAlTelapak, 2004 on

page 11 ofthe proposal.

We have deleted the reference as requested.

5. Provide a mechanism and procedure for an objective selection of companies in

Japan, and of more companies in Indonesia and Malaysia.

Refer to annexes M and N for the mechanism and procedure for an objective selection of

companies in Japan. We have raised the number of companies in Indonesia and Malaysia that

the Project will assist in developing and implementing action plans to achieve certification/legal

verification to a total of 6 (3 from each country; see modifications on p.15, p.40 and p.50 ).

We believe it may be unreasonable to raise this number further given the time frame of the

Project and the size of the Project budget.

6. Ensure that the task teams in Japan, Indonesia and Malaysia are more

representative of the various parties that will be engaged in the project and that the

composition of this representation is the result of mutual agreement.

The task teams (see p. 23) have been reorganized to include independent research institutions,

civil society organizations, and private sector associations who have been informed of, and

agreed to, team composition.

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